Good luck! It tends to favor the prepared. In 2000, I had neither money nor awareness ("what is the stock market good for anyway?"). In 2008 I had both which was very helpful. I'd also add 2013 although that was just a tiny blip.

Recently, I've been accumulating dry powder in a 3-4 month CD ladder (FDIC insured). 2% would be nice, but 1.5% is good enough for me compared to the fact that the generic SPU doesn't yield much more. The 3-4 months is a compromise between having a barbell (CD + equity) in the face of hikes and being able to unroll it fast enough and load it into what gets hit hardest when the big one appears. I think it'll be faster than 3 years. I figure having it in a ladder will instill some discipline to avoid getting carried away with any "buy the dip! buy the dip!"-traps which were plentiful in 2007-09.

Thanks. I've been fortunate to have found this site, which started it all. It ended up being a catalyst for starting a new journey into self discovery and life re-prioritization. Of course, I didn't know it at the time, but it had to be that way. I mean, how hard could it be to save extra 25% a month really? (right )

Curious, in the 2008 experience, did you select the whole market in the rebound or did you cherry pick?

I'm concerned at the debt level in the US as we will soon be faced with 30-50 trillion dollars in a decade or so depending on how this plays out.
For the short term, let's say buy the dip. I have wonder, what will we be getting for the long term? Not exactly the kind of Christmas present everyone hopes for, is it?

Coming out in 2009, I was mostly in small cap. They tend to do better coming out (because they got hammered going in). More importantly, right now there's practically nothing to be found at decent values. If/when CAPE10 is around 15, there'll be lots more to choose from and small/mid caps will tend to have the more attractive valuations.

I dunno going forward. I'm given a lot of though to a barbell strategy with 95% in cash and broad market call options(*) for the rest. I suspect more volatility and higher interest rates ahead. However, all cash is risky with inflation. So I don't know.

Generation-X, thank you for keeping an incredibly lucid journal. Your posts seem limited to here....they are missed in other areas in the forum. I admire your adherence to fundamentals, taking note of the overvaluations on your very first page back in 2014, and stubbornly resisting the FOMO. No doubt your experiences in the dot-com bust informs your mindset.

You speak a lot about evil and insidious inflation. George already tried to get you thinking about a rental property...I understand that either you want to be a landlord or you don’t. You also mentioned precious metals once in your journal. I’ve read in some places that gold is a bubble and will drop 50%. I’ve also read that gold will do well if we have a huge debt bomb implosion that requires a huge increase in the money supply. It would seem to me there is a lot more upside than downside there. But you are extremely rigorous in your thinking...is there something you know that I don’t?

You also mentioned a 6% debt instrument that your utilize. Is this unique to your pension? I’m jealous! Also, if 6% is the rate that actuaries give out, where is that figure coming from? Just curious, not because I’m asking to get in on it (even though I want to get in on it) but because I’m trying to understand better how things work. If I know so-and-so is willing to pay 6% when 30 year bonds are barely paying 3%, it could illuminate some of the “how” and “why.” Or were your 6% debt instruments a legacy from when bond yields were higher? I love your charts that show the real return of investments after inflation, it’s just hard to know for sure what real inflation is. There is so much conflicting information.

Also, are you doing your options trading inside or outside your pre-tax or Roth accounts? On the one hand, if options expire worthless inside a pre-tax account, it’s that much less money you have to pay taxes on later. On the other hand, I wouldn’t want to have to pay income taxes if my options made huge gains. I would love to hear how you manage taxes in that regard.

Lol, thanks for an awesome clip. I can just see a 30-second Superbowl TV spot - Aesop's Value Fund, Slow but steady, wins the race!

I remember when gold was trading around $200-$300/oz. Some consider gold real money but its present function is probably limited to:

1. a **trade** instrument, providing a temporary safe haven during times of market downturn and periods of published large inflation on record.
2. a commodity, for luxury and in electronics.

During 2008 Iceland financial crisis, the country of Iceland practically defaulted. Its stock market lost over 90% of its value, its currency declined more than 60%, inflation ran up to 18.6% and interest rate ran upto 18%.

Of course, there were investors in Iceland as well, and many held physical gold and/or gold instruments because they knew this was coming. So how did gold do?

I remember there were forum dicussions and real time chats with these guys in Iceland at the time and amazingly, they observed gold being traded at "normal" prices during the collapse within Iceland. Iceland had imposed capital controls.

Well, if you are in Iceland, it would seem that the only thing that HAS retained its value, is gold. If you can’t get the right value for gold in Iceland as a result of capital controls, and everything else is in the toilet, it would seem to me that your best option would be to just pack up your gold, and leave Iceland.

Do you suspect that gold will return to its previous range of $200-300? Or it’s $35 price tag at the window when Bretton Woods ended? Trillions of dollars of increasing sovereign debt, shrinking growth....shouldn’t the currency suffer?

Even if the real return of gold in the long term is 0%, that’s better than the post-gold standard dollar. Your journal is rife with skepticism of the government. “Highway robbery all over again.” Isn’t that what seigniorage is? Rack up debt, debase the currency, pay off the debts with said debased currency. Savers in fiat foot the bill. In Ancient Rome, the Aureus was debased, then replaced with the Solidus, which was also debased. They taxed the locals in precious metals, and distributed new currency in base metals. Sign of declining empire. Isn’t this what is happening?

I don’t mean to hammer you. It’s just that I share all your skepticism of the current market and have come to the opposite conclusion (for now). Gold isn’t a magic cure, just a stable store of wealth protected from short-term market busts. I would hate to be all in fiat if the next bust requires QE4. You’ve worked too hard- I hate to see your reserves be eroded. Even a small allocation could make a huge difference for you.

The question about gold is interesting and it's an age-old question - what is the best medium of storage of your economic contribution?

Fiat loses significant value over time. It's a lossy storage medium. That's why we are *forced* to invest or forced to produce more (work) to keep up with the loss.

But in a situation similar to Iceland, a financial crisis caused by a default, I would prefer to own real wealth over anything else.

By that I mean things like a home, have some seeds and land, fruit trees, chickens, a swimming pool, gasoline, penicillin, solar panels and batteries, a stockpile of goods etc...

Movement of money during a crisis will be difficult, even now***.

If the day comes when US government defaults on its debt, imho, that will be the day when the house of cards crumble.
The worry over massive federal debt is exactly that - even reserve currency has limits.

On books, another popular book is McMilllan on options as a basic starting reference. CBOE is also good intro source.
More math and in depth - Euan Sinclair, etc.

***While there no legal maximum in taking cash out of the US while traveling, amount over $10,000 must be reported to Customs and Border Protection.
If not, the cash will be seized until proof of the legitimate source of the money and proof of the legitimate intended use of the money are provided.

I have no intentions of leaving the US. If the US collapses, all bets are off, and as bad as it could get here, I am sure it would be worse elsewhere.

I don’t think the US government will default outright. They just devalue and pay debts with the devalued currency. This already happened in the 1970’s and again after 2008. Given the debts and trade deficits, I can’t see why this shouldn’t happen every 10-20 years in a floating fiat world.

I could easily see the $500k you are holding today be worth $200k in today’s money, 10 years from now.

You are right, it’s best to have possession of things that are *real*.

That is correct, until US defaults on its debt, gold will remain a trading instrument. It is a quasi reserve currency.
I do not believe the policy makers will allow gold to challenge the reserve currency status of the dollar. And the same goes for bitcoin.***

Inflating our way out of debt isn't something new. But we are not going back to 21.46%, let alone 5% interest rate anytime soon, because the Fed can't afford it. We are entering a period of monetary contraction. The Fed isn't going to lose money.

The tail risk is that there *is* a chance US could default as a result of a catastrophic downturn should it occur. As pointed out earlier, the capital controls are already in place. But we will be able to see it coming and there will be a window to convert fiat if you know what to look for.

Until then, US will remain dollar denominated.

The total American household net worth is about 100 trillion. I guess we'll find out in 10 years if our net worth drops to 40 trillion, if you are correct.

There is real wealth in the United States. It isn't the gold or the silver or even the dollar. It's in plain view.

But more importantly, it's in the system, the people and the grey matter that occupy the space between the ears.
The wealth will last if there is a will to keep both the system and people honest and truthful.

Good luck in gld options. Volatility is nice but try not to drive looking through a rear view mirror.

***Pretty much in a nutshell, the crux of Keynesian economics is that by controlling the relationship between available goods and the quantity of medium of exchange/storage chasing after these goods (i.e. fed target inflation rate of 2-2.5%) it produces real wealth.

Because people have to have more and more green paper to buy the same item year after year (i.e. a big mac) they have to be more productive (work) to get more green paper, which in turn produces more goods or real wealth.

And the reserve currency status prolongs this effect by distributing the local currency world wide which are then held outside.

This dilution allows for more fiat printing capacity in reserve currency than in non-reserve.

I guess what I like about gold is that there is no central authority. I think the reason for holding it is, I doubt that I can see the catastrophe coming. The smart money will be gone from the dollar long before lowly Mister Imperceptible. I have no natural affinity for a hunk of yellow metal that does not respond to fondling it, anymore than I do for a Lamborghini. I just think the yellow metal will retain its value better than the sports car. And currently I don’t have the time or land or resources or wherewithal to manage livestock, wise though that is. And you can only stack so many cans of Campbell soup in a basement.

You are right- the Fed does NOT want the dollar to lose its reserve status. It may even be possible that they are manipulating the gold price downward as long as they can, to give the illusion of stability.

But I agree the real wealth is here....we just refuse to let firms go bankrupt. It’s capitalism for the poor, and socialism for the rich. Artificially low interest rates and QE distorting the market valuations doesn’t mean the underlining businesses are all bad, but it does mean it is harder to differentiate the good firms from the zombie firms being kept alive by loose monetary policy. I think we have too many resources, both human and natural, to experience a full-scale Japanification, but who knows. The longer the distortion goes, the worse the following crash should be.

This is a retirement website and I just don’t want to think the only solution to the green paper being lossy is that you have to continue working. I thought the point was to figure out how we are being scammed, in order to beat the system. Generation-X deserves better.

*****

A colleague just handed me a book he had promised to loan me, and it turned out to be the fifth edition of McMillan. Thanks again for the tip.

To short as Dow was rallying to 400 points was a bit unnerving but on the flip side, the price was relatively cheaper. (Relative, as market is volatile therefore higher premium)

This is now entering somewhat of a gambling territory as if SPX loses the current level, the pay-off will be significant.

If market downfall is to be believed then gold is looking good here as well, but the problem with gold is that the outlook must be long term due to its high price volatility.

This means either owning the shares outright, or LEAPS at around 20 - 25% of the cost of owning shares directly. It's pretty much all or nothing bet and given the high premiums currently, I will have to look at the situation further.

Also in the news was that Russia and China have moved toward a more cooperative military ties against the US. This is probably more symbolic as two nations have been historically hostile to one another.

But the recent resurgence of dictatorships throughout the world, especially in Russia and China, both confronting the US, clearly signals a dangerous turn of events.

The world sees weakness in US. And Russia and China know this.

Aided by Trump's lack of leadership and inexperience, along with his clear fascist*** protectionism agenda which is actually hurting the United States in the world stage with other nations, the two countries are seizing this opportunity to change the world order.

The true strength of the United States has always been its ties with the rest of the world. It was the faith and credit the world had, that US would do the right thing in good times or bad, that has kept US as the moral and political leader of many nations.

"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently." - some wise old man.

I'm shorting the market. As disheartening as it is, this is the truth.

***Fascism (/ˈfæʃɪzəm/) is a form of radical authoritarian nationalism,[1][2] characterized by dictatorial power, forcible suppression of opposition and control of industry and commerce,[3] which came to prominence in early 20th-century Europe.[4] The first fascist movements emerged in Italy during World War I before it spread to other European countries.[4] Opposed to liberalism, Marxism and anarchism, fascism is usually placed on the far-right within the traditional left–right spectrum.[5][6][7][4][8][9]
...
Fascists believe that liberal democracy is obsolete and they regard the complete mobilization of society under a totalitarian one-party state as necessary to prepare a nation for armed conflict and to respond effectively to economic difficulties.[12] Such a state is led by a strong leader—such as a dictator and a martial government composed of the members of the governing fascist party—to forge national unity and maintain a stable and orderly society.[12] Fascism rejects assertions that violence is automatically negative in nature and views political violence, war and imperialism as means that can achieve national rejuvenation.[13][14][15][16] Fascists advocate a mixed economy, with the principal goal of achieving autarky through protectionist and interventionist economic policies.[17]